Business Law and Practice - Incoming and Outgoing Partners, Property and Financial Rights Flashcards
Incoming Partners
Partner liable for debts only if incurred after they became a partner unless they agree
No new partners can be added to a partnership without the consent of all existing partners
Outgoing Partners
Remain liable for existing debts:
- Unless partner and firm agree to a release of a ‘hold harmless agreement’ - this has no effect on third parties
- Third parties can agree a novation which would mean partner is not liable to them
Partner liable for debts incurred after they leave unless they give the correct notice:
- Anyone who dealt with partnership whilst outgoing partner was partner needs actual notice
- New creditors need to be notified through an advert in the London Gazette
Holding Out
Non-partner may be liable to a third party if they hold themselves out as a partner or knowingly allow another to do so if a third party has given credit to the partnership on the strength of the holding out
Can also apply to retiring partners if they have not given proper notice to existing and new customers and if they have failed to ensure that their name is removed from any notices, websites or stationer
Given credit: broader than just money being lent to the partnership, can also cover goods supplied
Property bought with partnership money
Deemed to be partnership property in the absence of an agreement to the contrary
Property brought in by partner
Simply using asset in business does not make it partnership property - parties’ intention is key
Property brought in by partner at beginning of partnership treated as partnership property only if there is an agreement
Financial Rights
Sharing of profits: partnership profits split equally unless can be shown there was a specific provision in the partnership agreement stating otherwise
Sharing of losses: where there is no agreement losses will be shared in same proportion as profits
Distribution of profits: unless otherwise agreed, partner has no right to distributions prior to dissolution - however, tax is owed on the profits
Assignment of Profits
Partner’s right to share of profits is assignable
Assignee does not become a partner or gain management rights
Outsider can become partner only by unanimous agreement (unless partnership agreement provides otherwise)
Creditors of individual partner
Cannot seek execution on partnership property to satisfy debt of partner
Can ask the court to make an order charging the partner’s interest in the form - creditor does not become a partner
